Monday, August 9, 2010

Is The Wall Street Journal Concerned About Wealth Distribution?

This graph show shares of US income from 2003.  The distribution is even worse now.

U.S. Economy Is Increasingly Tied to the Rich
by Robert Frank - Wall Street Journal - Sunday, August 1, 2010

Who cares how the rich spend their money?

Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.

According to new research from Moody's Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments.

By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.  (Captured is a very good discretion, as opposed to using the word 'earned'.)

What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.

Mark Zandi, chief economist for Moody's Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. "I think that pent-up demand was unleashed," he said. "It was an unusually high rate of spending." (Or the markets were manipulated in order to provide the wealthy with more liquid as opposed to paper assets.)

The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as Friday's data reminds us. That has crimped their spending.

The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. "I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution," Mr. Zandi said. He added that, "In the near term it highlights the fragility of the recovery."

In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody's Analytics data. They still have lots of savings. But the massive draw on that in the past two years is unlikely to continue at the same pace.

"I think we're already seeing a slowdown in spending by this group," Mr. Zandi says.

And that should be a worry for all of us.


The big surprise for me with this article is not it's statistics, but that it's from the Wall Street Journal.  That worries me.  If the big boys are starting to point out our current level of wealth distribution is not good for the rich, then the US is in some serious trouble.

Given my own financial situation at the moment, it's kind of hard for me to generate a great deal of sympathy for the rich.  However, I am not blind to the fact that if the rich fall too far, the chances of me rising are about nil. It angers me though, that this country has blithely walked down this path led by the very people who could very well permanently destroy economy for all of us.  As in all of us in a global sense, not just in a US sense.

There is something about the Wall Street Journal calling the US economy a plutonomy that is mind boggling. Is this the same Wall Street Journal that was all on board with Reaganomics and Bush II's tax cuts and has been a very big shill for the expansion of military spending? 

In reading the comments after the article no one is mentioning a very important facts about how we got to be a plutonomy.  Our defense spending equates to about 25-29% of the total federal budget, but an estimated 38-44% of the total tax revenue.  The number is hard to pin down because other governmental agencies like Homeland Security have their own budgets but also spend a ton on military equipment, development, and training.  Even NASA's budget is almost 50% defense related.  And then no one knows how much is spent on black ops because they aren't subject to much congressional over site.  The estimated over all budget for defense purposes is 1.0 to 1.22 trillion for fiscal year 2010.  This figure includes the Iraq and Afghanistan wars.  So how many people draw a paycheck from all that money, about 5.3 million which is not a very large percentage of the work force, but adding in their dependents it means somewhere around 20% of the US population is dependant on military and defense spending.

Here's the other fact not getting mentioned--global corporations.  For instance, the defense industry employs about three times as many people as Walmart and their estimated budget is about three times Walmart's gross revenues.  Walmart had gross revenues of 406 billion in 2009.  It is hard for me to get my head around the fact that one corporation, Walmart,  is this big.  It is now about one third the total of our entire military industrial complex in terms of share of revenue and employment.  No wonder Walmart can steam roll it's competition, but the fact it's pay scale is no where near a living wage, means it has a hugely detrimental impact on American earning potential.  And this is separate from the whole question of it's global impact.  One could say Walmart itself is a big reason a lot of us have to shop at Walmart.

There is no question that Wall Street speculation and greed is a huge reason we now have a plutonomy, but it isn't the only huge reason.  If the US is going to get serious about addressing this wealth distribution issue, everything needs to be put on the table and that includes virtual monopolies and blank checks for defense spending.  In the meantime payday loan sharks and pawn shops will continue to show bullish growth.  Yippee.


  1. Colleen -

    Personally I have just observed the price of bacon (at Wal-Mart) rise by $1 in the past 2 weeks. With no explanation. Other food products have risen easily by 1/3 over the past year.

    Yet the Federal govt. chose NOT to give the usual annual increase in Social Security, SSI & Disability benefits. Claiming there was 'no increase in the cost of living'.

    In what alternative reality are they living?

    YET....we have Billion$$ to fund never ending wars in two countries & scores of completely useless military bases on foreign soil across the globe. And seemingly limitless funding for....anything BUT things which actually help those in need.

    What about all the newly impoverished? Whose homes have been foreclosed? And/or who have lost their jobs? How are they to eat & live?

    Yet the Knights of Pompousity have $1 million to donante a mosiac to the National Basilica, to show their power. And many millions more to waste on Anti-Gay political hate initiatives. And to fund the plethora of radical Pro-Life entities. Like Fr. Frank Provolone & his Priests for Death.

    ...I say that boldly, as if he/they really gave a DAMN about ppl, they would do something of substance to help the live!

    Or the Knights of the CIA with their phony pretense of 'charitable works'....which are as invisible as those of the Knights of the Beer Belly. Except perhaps for carefully staged photo ops with a freshly hosed down & dressed Haitian youth, smiling for the money they give him/her.

    Or when the Knights of the Beer Belly pose for photo ops, Post Katrina...pretending to hammer a nail into a piece of wood.

    Please......THESE are the things which 'make Jesus puke'.

    Anon Y. Mouse

  2. Yes we do seem to have our priorities just a tad screwed. I read this one article in researching employment for the military industrial complex that went into great detail about all the propaganda and think tanks that justify our ask no questions military spending policies. It's pretty obvious where a chunk of that 1.1 trillion goes--into justifying that very 1.1 trillion.

    That number is just mind boggling when you think of all the hot air and blather that went into the health care debate which amounts to slightly less money over ten years.

    A person who really looked could see the handwriting on the wall about Walmart along time ago. A captive audience means captive prices. That's not just true of comsumers, it's also true of suppliers. This is one company with a very big stick.

  3. Back to the bacon......I was referring to the Wal-Mart generic brand (prolly Plumrose or the like, rebranded).

    First it jumped from $2.58 to $3.18 in a few day.No warning. And no known pig shortage:p The name brands followed suit. Now the odd thing is that Ham (canned, diced, or in other forms) has remained stable. Pork bellies are cheap & plentiful. And more widely used (as bacon) then any other pork/ham product.

    While other foods have either shown no to only moderate price rise. Obviously, they are aiming at what ppl notice.

    Wal-Mart is the vendor of the 'supermarket to the world"...of food. ADM, Monsanto, General Mills, & so forth. They also cause other stores to close when a new Wal-Mart opens. Hence the captive audience.

    And indeed, if the insane military/war budget were seriously axed, free universal health care would be effectively a non-issue. Even at present tax rates.

    Anon Y. Mouse

  4. I agree with Mr. Zandi "I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution."

    I believe this is the unhealthy result of many years of corporate lobbyist interest getting ahead of the nation's best interest. This definitely gives the wealthy a disproportionate amount of power in many ways and makes the 98% at the mercy of their spending or not spending and are powerless to do anything about that effect on the entire economy & their livelihoods.

    The thing that Republicans are pushing for in the coming elections all have to do with money, keeping the tax cuts for the wealthy that Bush gave them, of which they want to keep for the wealthy forever. Any other issues about money, such as for small businesses helped at the Federal level are seen by Republican power brokers as taking away from the big corporate interest. They see Social Security, Medicaid or any other social programs as taking away from their interest, which is just about money for them.

    Currently, corporations are the extreme narcissistic system only out for their own interest, the shareholders & their investment for a return of financial gain. There is nothing built within their economic system to encourage them to invest in the common good.

    The tax cuts for the wealthy have helped the wealthy at the expense of the 98% who are struggling to stay afloat in a job market which is getting smaller, pay & benefits at increasingly lower levels. This, in my opinion, has helped to create a Plutonomy. btw, I never heard of that term before.

  5. Part II: The issue of Billions$$ to fund wars, homeland security which is a separate entity from the military and growing exponentially it seems and no $$ available for investing in the future, creating jobs & a workforce paid at sustaining levels helps to create this Plotonomy.

    If the wealthy's interest continue to have this much power & effect over the rest of us in the economy, the stock market, the GNP, this nation really will no longer be a country in which our democracy or republic matters as much as the pocketbooks & wallets of the wealthy.

    The 2% are not investing their money in ways that would generate jobs & income for others in this country. It is as if the Banks and wealthy corporations have closed all possible chance for a livelihood in this country in any field other than their own businesses which do not contribute to sustaining a nation of people, of which they consistently recycle older workers for a younger pool at lower cost. The corporations exist merely for their own interest alone. It is a disconnect that is built into their business system.

    20% of Americans are relying on the military industrial complex for their income and livelihood. That is an amazing amount. In a recent issue of Money magazine, it shows those parts of the country that were not hit by the economic recession and they are all towns that have a connection to jobs with the military industrial complex. If these are the only types of jobs available to people & those numbers keep going up, the combination of power & interest from these groups feeds the increasing inevitability for sustaining them & keeping the wars going so that there are more orders for what they make as a business. They are big lobby group with their own narcissistic outlook & needs.

    Recently the Supreme Court decided that Corporations are People, yet Corporations are a system, not an entire nation of People. They only have their own corporate interests in mind.

    I refuse to shop at Walmart. I'll pay the few extra dollars to shop elsewhere & I only shop for what is truly needed. Many though must have to go to Walmart in order to eat. It is such a sad situation to witness Walmart, the four wealthiest people on the planet, only out for their corporate interest & never seeing that all people are connected & how we relate to one another can make the difference between wars, a healthy nation & economy for all.

  6. Colleen -

    From observation there is one sector of US society which has not tightened their household budgets in any real way:

    Catholic clergy.

    Always plenty of top shelf booze in the rectories. Plenty of fine wine & expensive gourmet cheeses. You will not find the Wal-Mart generic brands of food in their rectory kitches. Or anything from the Dollar stores.

    The air conditioning will be running on the highest setting around the clock. Ditto for the heat in winter.....but ONLY in the rectory. The churches are left cold, even when mass is said, while rectories are set to 80 degrees of heat.

    Father has the latest cell phone, credit cards with unlimited credit lines (seriously!), and a nice late model car. Or two. Typically a vacation house in the country. And a condo in Florida, the Carolinas....or in Mexico, Costa Rica, or Puerto Rico (a tax haven).

    His mail is full of statements from bank & investment accounts/portfolios.

    "Behold: a fat priest!".

    Yet most fail to realize that their selfishness with their riches can lead to the fate of the Rich Man in the story of Lazarus the beggar.

    I do not see priests......ever.....doing real, hands-on, meaningful & tangible acts of charity with their manicured hands. Or from their own wallets.

    Anon Y. Mouse